EAGERS Automotive (AEL) has signed an enforceable undertaking (EU) with the Fair Work Ombudsman that should finally put to bed the $16 million back-pay “land mine” it found inside the books of five Automotive Holdings Group (AHG) subsidiaries.

What was then AP Eagers took over AHG in 2019. The pay shortfall issue came to light in the wake of the integration of AHG businesses into Eagers.

After chasing down the discrepancies in the intervening period the shortfall eventually came to $16 million. The Fair Work Ombudsman said that Individual back-payments to employees range from less than $1 to $69,298. The average back-payment is about $1,217 including superannuation and interest.

Outstanding monies owed to people who cannot be contacted came to $200,000 and this must be paid to the Ombudsman’s unclaimed monies fund. 

GoAutoNews Premium has been told that because the acquisition of AHG effectively turned into a hostile takeover of the company, Eagers did not have access to the accounts of the WA-based AHG dealer group.

When the issue emerged, Eagers self-reported to the FWO and set about tracking down those who were owed money.

The agreement just announced by the Ombudsman under the enforceable undertaking assures the regulator that Eagers has in place a system and procedures that will prevent such issues occurring again and one imagines that those offering their dealership business to Eagers will need to make sure there are no back-pay issues, or resolve such issues, before discussions can proceed.

In a statement, the Fair Work Ombudsman said that Australia’s largest dealer group has now back-paid more than $16 million including interest and superannuation to staff underpaid by five of its subsidiaries.

“The parties to the EU are five of its subsidiaries, acquired in 2019. The underpaid employees mainly worked across the greater areas of Newcastle, Sydney, Brisbane, Melbourne and Perth.

“EAL operates dealerships that collectively sell almost all major vehicle brands, including Toyota, Ford, Mercedes-Benz, Kia, Volkswagen and Hyundai among many others with annual revenue of $9.85 billion.

The FWO said that when AP Eagers acquired AHG in 2019, AHG was the holding company for 19 businesses.

“EAL self-reported the underpayments to the regulator in June 2021 after it initiated a review of the companies’ payroll after acquisition, and found anomalies in relation to 19 AHG subsidiaries.

The FWO said the self-report revealed that (the former AHG) EAL subsidiaries:

• Unlawfully failed to pay in line with award progression
• Incorrectly classified employees
• Did not pay overtime, annual leave and annual leave loading
• Did not pay for training
• Failed to pay, as required, when employees were sent home due to no work. 

“They also made unauthorised deductions,” the FWO said.

“Eagers Automotive Limited (on behalf of the five entities) has back-paid 13,277 current and former employees of those entities $16.2 million, including about $12.1 million in wages, $1.1 million in superannuation, and $3 million in interest. The underpayments occurred between 2013 and 2021.

“Rectifications outside of the requirements of the EU include an additional $1.9 million, including interest and superannuation, back-paid to 701 current and former employees of 14 other subsidiary companies.

“About $200,000 is still owed to employees who cannot be found – under the EU, payments must be completed within 120 days or be paid into the FWO unclaimed monies fund.

“Employees affected by the breaches were engaged full-time, part-time and casually across car and truck dealerships in the network as finance officers, and in car sales, parts sales, and servicing employees.

“The EU is with the five largest companies: AHG Newcastle Pty Ltd; AHG Services NSW Pty Ltd; AHG Services Qld Pty Ltd; AHG Services Vic Pty Ltd; and AHG Services WA Pty Ltd.

“Under the EU, the five companies must also make a combined $450,000 contrition payment to the Commonwealth’s Consolidated Revenue Fund.”

Fair Work Ombudsman Anna Booth said an EU was appropriate as the underpayments that are the subject of the EU largely relate to past non-compliance identified by EAL following an acquisition of previously separate entities.

The companies have cooperated with the FWO’s investigation and demonstrated a strong commitment to both rectifying underpayments and changes to ensure they are not repeated.

“Under the Enforceable Undertaking, the subsidiaries of Eagers Automotive Limited have committed to implementing stringent measures to ensure all their workers are paid correctly. These measures include commissioning, at their own cost, an independent auditor to check they are appropriately meeting all lawful entitlements,” Ms Booth said.

Ms Booth said the matter serves as a warning to all employers about what is at stake if they fail to ensure rigorous compliance with awards and enterprise agreements.

“In this matter, long-term breaches resulted from a lack of a consistent time and attendance system along with reliance upon manual paper timesheets, and a decentralised payroll system – plus a lack of awareness of workers’ legal entitlements,” Ms Booth said.

“The companies’ disappointing, unchecked breaches left them significant staff underpayments and related rectification costs.

“It’s pleasing that EAL proactively looked for issues in its new acquisitions, then self-reported to FWO and endeavoured to rectify them. Large employers need to place a higher priority on having systems and processes in place that ensure employees’ full lawful entitlements are met, year-in, year-out.

“It is also a good example of the importance of conducting thorough compliance checks when acquiring businesses, and implementing centralised, consistent compliance processes to avoid ongoing issues.”

The workers’ entitlements were owed under the Clerks – Private Sector Award 2020; Vehicle Repair, Services and Retail Award 2020; Banking, Finance and Insurance Award 2020; and eight different enterprise agreements, as well as the Fair Work Act.

The EU also requires the five companies to engage an independent provider to operate an employee hotline for three months at their own cost; write to affected staff to tell them the EU has begun; and give FWO evidence of mechanisms in place to identify and rectify compliance issues associated with any future acquisitions.